Farmers’ plans to hand over the reins to the next generation could be hit by a cut in the pension life-time allowance, warns leading rural insurer NFU Mutual.
In his Budget speech Chancellor George Osborne announced a cut in the personal life time pension allowance from £1.2m to £1m from April 2016.
Extending the period farmers can ‘average’ their incomes for tax purposes to five years will help farmers through hard times and make planning more straightforwardSean McCann, Chartered Financial Planner at NFU Mutual
“The reduction in the pension life time allowance to £1m is bad news for farmers who often use self-invested pensions to buy farm land or commercial property often as part of succession planning,” Sean McCann, Chartered Financial Planner at NFU Mutual.
“Despite £1m sounding like a lot of money, this doesn’t just affect the super-rich. A pension pot of £1m is fairly common today for people earning a reasonable income who have put putting money into a pension over a number of years.
“We’re also concerned about the Chancellor’s announcement to review Deeds of Variations. Deeds of Variation are a valuable tool to help farming families change wills up to two years after a death. This makes it possible for the surviving members of the family to alter provisions which can lead to problems passing on the farm to the younger generation.
“They can also rectify anomalies in wills written years ago – so we will be calling for this facility to be kept in place in the consultation announced by the Chancellor,” he added.
Sean welcomed the Chancellor’ announcement that farmers will in futures be able to ‘average’ their income over five years instead of two for tax purposes.
“From one year to another the weather and volatile market prices mean today’s farmers can go from a profit to a big loss,” he said.
“Extending the period farmers can ‘average’ their incomes for tax purposes to five years will help farmers through hard times and make planning more straightforward.”
He welcomed news that the Government is consulting on abolishing Class 2 National Insurance contributions as this would simplify accounting for self-employed farmers.”
Help for savers in the form of flexible ISAs which enable people to take money out and put it back in again during the tax year and tax-free returns on up to £1,000 interest were also welcomed.
“The special Help to Buy ISA for first-time homebuyers is also a welcome measure for the many young people struggling to save enough for a deposit on a home.
“Last year’s Budget heralded much more freedom for pensioners. This will be further extended from 2016 with pensioners able to ‘cash in’ their annuity in exchange for a lump sum instead.
“This is a complicated issue – and it’s good to see that the Government is going to be consulting on how to provide advice to protect vulnerable people.
“All in all, the Chancellor’s measures offer opportunities for individuals and businesses to pay less tax – but as always the devil is in the detail and it’s important that people seek financial advice before taking steps which have a major affect on their investments, pensions and succession plans
Information on the full implications of the Budget for personal finance, farms and business will be Tweeted from: @nfum.